Wednesday, October 6, 2010

Mixed Signals

Let's forget about the index charts today and focus on some particular stocks instead. Yes, I am talking about the market leaders whose charts I posted a little while earlier. Have a look if you haven't done so already or don't know what I am talking about.

Now, these are some of the stocks that have led this rally so far and they broke down in absolutely spectacular fashion today. I am not talking about a pullback here but an absolute slaughter. All these charts just go on to show the importance of sticking to your stop losses. Sometimes, one might feel that one is in a fundamentally very strong stock or the company has amazing growth potential, but these are no reasons for not keeping a stop loss. Sometimes, the market does not offer any second chances. But this is not the purpose of this post, so let's move on to the larger picture.

In spite of the collapse of these market leaders, the overall markets are holding up rather well. As it often happens with the markets, this rather admirable performance of the overall markets can be interpreted in two ways:

(a) This market is strong enough that it can withstand the breakdown of few of its leaders.

(b) This bull rally is on its last legs and the only thing holding up this rally now is suckers money coming in which always comes in at the top of the rallies.

Take your pick! My personal strategy here is to keep cash as my largest position. I am not going to even think about shorting this market until 1150 breaks on the S&P which should provide strong support to the bulls. Add the above two points, and I guess that makes me cautiously bullish until 1150 breaks.

Take care and good luck!


Bill said...

Get out while you can, fundamentals for the next 6 months look terrible. And again for anyone that hasnt heard this for the 4th time. SELL NFLX! Geronimo! I currently hold a 6 month $75 put position in NFLX. Thats how confident i am, but im not telling you to sell b/c i think its going down %50 in 6 months im telling you to sell b/c the fundamentals are terrible for long term investment in this stock or in most stocks for that matter. I will give you one long term buy though: CMG! Look at its 2 year chart! Holy cow have you ever seen something so pretty? And the company is spot on management and product. G/L everyone.

Anonymous said...

that is a very pretty chart. I think u r right. Besides the fundies, the world economy stinks and its a global market now.